Limited Liability Company

Getting your new Limited Liability Company (LLC) on sound financial footing is essential to ensuring your short and long-term business success. At His CPA PC we work hard to make sure you make a well-advised decision by considering the way you plan to use your Georgia LLC operationally versus what your tax obligations will be for alternative entity types.

The below checklist is a guide you can use to setting up your new Limited Liability Company (LLC).

Setting up a Limited Liability Company (LLC)

• Check on the Secretary of State’s web site to verify that the name you desire to use for your new Limited Liability Company (LLC) is available. Consider legally registering your business name as a trademark after you have the name legally reserved.
• Be sure to file with the Secretary of State’s Office the Articles of Organization and the initial filing fees of your Limited Liability Company (LLC) and be sure to file the required notice requirements in the county’s official legal organ/newspaper.
• Apply for the Federal EIN/ID # for your Limited Liability Company (LLC) on the IRS’s web-site. If you are going to have employees you will need to apply for an ID # with the  Department of Labor and the Department of Revenue for payroll withholding and sales tax if necessary. Obtain your business license from the county where the business is located unless your Georgia LLC is located within the city limits of a municipality, in which case you will obtain from that city’s local government. If you are going to be the sole employee of your LLC and you are choosing/electing to remain an LLC for tax purposes, you will not need to file for the withholding numbers, as single member LLC owners being taxed as an LLC are not to report their earnings/pay themselves a salary via W-2 wages.
• If you elect for your Limited Liability Company (LLC) to be an S Corporation for tax purposes you will need to file IRS Form 2553 (Election to be a Small Business Corporation) within 75 days of the business incorporation date being sure to have all owners/members of the LLC sign and date. For business owners with multiple owners/members it is prudent to require them to sign/date a Membership agreement prior to them becoming a co-owner of the business. If yourLimited Liability Company (LLC) makes a tax election to be an S Corporation for tax purposes then the active owners/members are required to take/report a fair and reasonable salary given position and profit.
• Open a corporate bank account being sure to take with you your corporate book, a copy of your business license application and your Federal ID # of your new Limited Liability Company (LLC).  Be sure your business conducts all of its business in the name of the LLC.
• Evaluate using QuickBooks for your bookkeeping and accounting needs or another suitable accounting program to record and track your business operations while working closely with your CPA to determine and set up the chart of accounts for your new Limited Liability Company (LLC).
• Retain a payroll service to handle the processing, filing and paying of all of your payroll needs allowing you to do what you do best. Run your business!

A Limited Liability Company (LLC) are ideally suited for Entrepreneurs who are looking for ease of reporting, need to be an LLC for operational needs and do not qualify to be an S Corporation. A single member Limited Liability Company (LLC) is to file their return reporting the business results on Schedule C on their personal income tax return and pay the attendant self-employment taxes on Schedule SE. If the LLC elects to be a Georgia S Corporation for income tax purposes then the LLC will report their business results/income on IRS Form 1120S.

A Limited Liability Company (LLC) is ideally suited for business owners who are looking to mitigate their taxes by avoiding the double taxation of a regular C corporation. An LLC is a “flow through” entity which results in the LLC not paying income taxes, as the business profits are reported on individual tax return/if a single member LLC or IRS Form 1065 (a partnership return) if there is more than one owner/member.

Limited Liability Company (LLC) Liability Exposure

A Limited Liability Company (LLC) is a legally recognized separate entity separate from the individual owners/members providing its owners legal protection from regular business/tort liabilities they would otherwise have been exposed to if they were a sole-proprietorship. Generally owners/members of LLC’s only legal exposure will be their personal investment in a  Limited Liability Company (LLC). A Georgia Limited Liability Company (LLC) will serve as a “legal shield” insulating and protecting its owners from business liabilities and litigation.

Professional Liability Exposure

Multi-owner/member physician practices, dentists, lawyers are legally exposed to personal professional liability issues regardless of their entity selection. If a professional practice has multi-owners they will want to consider setting up as a Limited Liability Partnership (LLP) so they will have legal protection from the professional liability caused by their partner/members. This protection is not afforded a Limited Liability Company (LLC).

Limited Liability Company (LLC) Taxation

A Limited Liability Company (LLC) that converts to an S Corporation for income tax purposes will file IRS Form 1120S with the IRS and Georgia Form 600S with the state of Georgia reflecting the business profits and losses. There are no income taxes paid when the income tax returns are filed as they are paid at the personal level when the owner reports their respective/prorated portion of business profits and losses on their Personal Income Tax Return/IRS Form 1040.

Liability for Owners of Limited Liability Company (LLC)

Generally speaking absent any malfeasance, gross negligence, intent to deceive/fraud, or a personal guarantee, a Limited Liability Company (LLC) owner/member cannot lose more than the monies they have personally invested in the business (other than the professional liability issues referred to above). Therefore courts and their judgments generally are not able to pierce through to the individual owners of the LLC. Protection from tort liability is one of the primary reasons many business owners look to set up as a Georgia Limited Liability Company.

Rules of Being a Limited Liability Company (LLC)

Generally speaking any business can choose to be a Georgia Limited Liability Company (LLC) and many do so for the ease of initial set-up and annual reporting. Care, however, should be exercised and considered as generally an LLC will pay more in taxes than an S Corporation. A  Limited Liability Company (LLC) can have an unlimited amount of owners/members, can allocate member distributions based upon any percentage owner/members agree regardless of ownership percentage, can have other corporations as owners and are generally required to have a calendar year-end.

Raising Capital for a Limited Liability Company (LLC)

Incorporating your Limited Liability Company (LLC) will afford you competitive advantages over being a sole-proprietorship when approaching your business banker. Being a Limited Liability Company (LLC) will gain you added credence as a business that can issue and sell ownership to prospective investors as well as the pledging of the company ownership as business collateral for a loan. Ownership of your Limited Liability Company (LLC) can also be sold in full and in part to potential partners/investors in an effort to raise capital.

Taxation of a Limited Liability Company (LLC)

• There is no income tax due when the Limited Liability Company (LLC) income tax return is filed whether being taxed as an LLC or an S Corporation.
• A Limited Liability Company (LLC) profits and losses are reflected on the individual owners of the LLC based upon their respective ownership percentages or any method to which the members collectively agree.
• A Limited Liability Company (LLC) is not subject to the “double taxation” of C Corporation regardless of whether it is taxed as an LLC or an S Corporation.
• Limited Liability Company (LLC) owner/members are able to utilize LLC losses against other income on the owner/member’s personal income tax return regardless of whether it is taxed as an LLC or an S Corporation.
• Limited Liability Company (LLC) earnings are subject to self-employment taxes similar to that of a sole proprietorship, Limited Liability Partnership (LLP) or Partnership if it remains an LLC for income tax purposes.
• A Limited Liability Company (LLC) will owe/pay FICA and Medicare taxes on their respective profits of the business and paid on the individual member’s personal income tax return if the LLC remains an LLC for tax purposes.

Choosing an Entity Type for Your New  Corporation
Your initial choice of entity is perhaps the most important tax, financial and legal decision you might ever reach. Being well versed in these areas is essential to a wise and prudent decision. Visit https://www.hiscpa.com/article2.html

Tax Effects of Entity Choice When Incorporating
Carefully considering the tax effects of your entity choice is essential to getting your business off on the right foot. Being careful to avoid, if at all possible, the double taxation of C Corporations and then selecting the right entity for your business from both a tax and legal perspective is critical. See https://www.hiscpa.com/article6.html